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Texas Needs Hurricane Relief, and That Could Mean the Debt Ceiling Gets Raised in a Hurry

Reuters Staff

By Bob Bryan, Business Insider

August 29, 2017

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As the storm Harvey devastates Texas and aims for Louisiana, local, state, and federal officials have already begun warning that the clean-up and recovery effort will require a massive amount of resources.

That effort will require action by the federal government and Congress. And it comes at a time when Congress is already facing down a series of fiscal deadlines that must be addressed by the end of September.

Before the end of next month, Congress must pass a bill to fund the government, increase the debt ceiling to avoid a financial catastrophe, reauthorize the federal government's flood insurance program, and reauthorize the Children's Health Insurance Program (CHIP).

Morgan Stanley's US economics team said Tuesday that there is a possibility the demands of the storm could end up bringing forward the deadline to raise the debt ceiling, as FEMA will likely an immediate influx of funding to handle the disaster.

There is only $3.3 billion in FEMA's Disaster Relief Fund, and while the agency could pull from other sources of funding, any additional large-scale funding would need to be appropriated by Congress.

President Donald Trump told reporters Monday that the government would do whatever was needed to help fund the Harvey response, likely meaning a appropriation from Congress will be necessary.

Increased outlays, however, would draw on the Treasury Department's already low reserve of cash on hand.

"If additional funds are appropriated without raising the debt ceiling first, this risks bringing forward the timing of the debt ceiling deadline, but it is more likely that these issues would be dealt with together," said the Morgan Stanley team.

Moving up that timeline may actually result in a solution to the debt ceiling earlier than anticipated.

Any additional disaster relief could be attached to a debt ceiling increase, making the combined package nearly impossible to vote against, Greg Valliere, chief strategist at Horizon Investments, wrote in a note to clients about the impact of Harvey on the so-called "budget brawl."

"Sources of Capitol Hill report that a massive hurricane relief bill may be attached to the debt ceiling increase, which would make its passage certain – and relatively quick, by Washington standards," Valliere said. "Or it may be attached to an overall budget package, avoiding a shutdown threat. We'd guess the former scenario is most likely; a shutdown threat can be deferred until December, when the budget will be resolved, as usual."

Such a package could also win over more conservative members of the Republican Party who were likely to vote against any debt ceiling increase.

According to Politico, adding the relief package to either the debt ceiling or a continuing resolution is on the table.